Mt Gox's customers feel it'll be easier to get US$ out than Bitcoins, if the exchange crashes.

Update 3: "First of all, I am very sorry," said Mark Karpales at a news conference in Tokyo earlier today, as Mt Gox filed for bankruptcy protection. Over half a million worth of bitcoin has been lost, apparently to hackers. According to Mt Gox, 750,000 of its customers' coins have gone missing, as well as 100,000 of its own.

It has 127,000 creditors in bankruptcy.

The first US lawsuit has already been filed, in Chicago District Court. Plaintiff Gregory Greene, with a $25,000 wallet lost to Mt Gox, alleges that the company and Karpales were negligent, and committed fraud.

Update 2: The CEO of Mt Gox, Mark Karpales, has said the bitcoin exchange is working hard to resolve its issues, and asks that his staff not be contacted for information. Further updates, Karpales promises, will be published via the Mt Gox site.

"As there is a lot of speculation regarding Mt Gox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan," says Karpales, "and working very hard with the support of different parties to find a solution to our recent issues."

Update: While not confirmed yet, early reports indicate that Mt Gox has shut down, probably for good. The site no longer exists, and neither does Mt Gox's Twitter account. A joint statement from other bitcoin providers says:

This tragic violation of the trust of users of Mt.Gox was the result of one company's actions and does not reflect the resilience or value of bitcoin and the digital currency industry. There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants. As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.

Original Story: When Bitcoin exchange Mt Gox announced that, due to DDoS attacks, trade was suspended, Mt Gox's customers began to worry. Would the exchange collapse? If it did, what would happen to its Bitcoin reserves? So Mt Gox's customers have been selling off the contents of their Bitcoin wallets, reasoning that, even if they can't get the cash right away, it will be easier to reclaim US$ from Mt Gox's wreckage than it will be to get Bitcoins back.

Mt Gox's coin value is currently at a high of $308.49 per, and a low of $248.14. Meanwhile Bitstamp is trading at $623.68 at time of writing, while Bulgaria's BTC-E is comfortably in the $603 to $617 range. In other words, it's about 50% cheaper to buy cryptocurrency at Mt Gox right now, though of course the trade itself is still subject to Mt Gox's ongoing freeze.

It's all about bankruptcy, in the end. If the worst befalls, it's up to the courts to decide what happens next. Imagine trying to persuade a judge, whose grasp of technical issues may be shaky, the value of a cryptocurrency. The value of a US$ debt is a much more quantifiable proposition. Of course, Mt Gox might not go under; but its customers can't be sure.

Mt Gox promises its customers it will have a workaround soon, and when that happens wallet withdrawals will be permitted. "Thank you again for your support, and we look forward to resume Bitcoin withdrawals as quickly as possible."